fazman

Canada Vs. Australia: No Bust In Canada, But A Recession Is Probable [View article]

Having lived in Vancouver for the greater part of my life (I'm in Texas now), I can say that it is a unique market. It costs basically the same to build the actual dwelling as anywhere else, but it the land cost component that keep rising. And, these costs will continue to rise for a long, long time.

The problem is that there simply isn't anywhere left to build. The City of Vancouver is completely built out, as is Burnaby and New Westminster. The US border to the south is largely residential all the way other than flood plain land (there is still some developable land available though). You can't build to the West as it is ocean. You can't build north as the snow capped mountains go straight up, and the developable land is built out. To the east is agricultural land reserve with black productive soil.

Additionally, the province of BC adds about 60k net new people each year, largely from Hong Kong, China and India. Most go to the city. When you add that kind of demand to a static supply of land inventory, what happens? Prices go up and the city densifies. That is exactly what is happening. The west end of Vancouver is as dense as Manhattan, and the downtown core of Richmond will soon follow suit.

The Vancouver prices are simply a function of supply and demand, and don't let anyone fool you into thinking that it is just a bubble. People in the future will be amazed that you could buy a 600 sq ft condo next to Skytrain for less than a half mil. Move that mortgage amortization out to 50 or 100 years and affordability isn't an issue for future generations. Vancouver is a beautiful place to live -- one of the best on the planet. Get used to high prices - they are here to stay!

NAHB Housing Market Index: 28, highest level since June 2007, vs. 30 expected and 28 (revised) prior. "While builders are still very cautious at this time, there is a sense that many local housing markets have started to move in the right direction and that prospects for future sales are improving," notes NAHB Chairman Barry Rutenberg. [View news story]

While traveling on the weekend in the Dallas/Ft Worth area, I was amazed at all of the site prep going on. While I did not see many units coming out of the ground, the dozers and related equipment are busy prepping very large subdivisions all over the region. The housebuilders are obviously getting ready for expected demand. It is already happening, right now!

Working for a very large international buildings supply company, our American division is already well ahead of forecasts. Way ahead!!! I have no idea if we are alone here or if this is being felt industry wide, (and the warm weather the past few months certainly helped), but from an economics point of view this is a very bullish leading indicator of what is about to happen in this sector.

Continued pressure from foreclosures that are finally being processed will pose headwinds for some time to come, however we appear to be past the bottom now. Construction is a large employer, and when it pops it will be a virtuous circle of employment gains, household formations, and price increases. When it pops, construction could very well explode upwards for a period of time.